One day after the Federal Reserve Board announced its long-awaited cut in interest rates, Treasury Secretary Janet Yellen declared during an interview this morning at The Atlantic Festival that the economy has reached a “soft landing” of low inflation and steady job growth.

“When we spoke two years ago, what I said was, I believed that there was a path to bring inflation down in the context of a strong job market,” she told me, referring to her previous appearance at the festival, in 2022. “And if the Fed and the administration’s policies could succeed in accomplishing that, we’d call that a soft landing. And I believe that’s exactly what we’re seeing in the economy.”

Without commenting on specific proposals by the Republican presidential nominee, Donald Trump, Yellen also argued that sweeping tariffs on foreign goods and the mass deportation of undocumented migrant workers—two ideas that Trump has insisted would be priorities of a second White House term—could significantly disrupt the economy and reverse progress in reducing inflation.

“I think it would be devastating to simply remove” that many undocumented workers from the economy, Yellen said, predicting that it would revive inflation. And although Trump has argued that foreign countries would pay the cost of the sweeping tariffs he says he will impose as president, Yellen echoed almost all mainstream economists when she said: “Americans, if we have tariffs, will end up paying the tariffs and seeing higher prices for goods that they purchase.”

Yellen has operated at the highest level of national economic-policy making for the past 30 years. An economist by profession, she was appointed as a Federal Reserve Board governor by President Bill Clinton in 1994, and later served as the chair of his Council of Economic Advisers. President Barack Obama appointed her as chair of the Federal Reserve Board, the first woman to hold the position. When President Joe Biden named her Treasury secretary, she became the first person to complete the trifecta of holding that job as well as having held those of the CEA chair and Fed chair.

This morning, Yellen sat down with me at The Atlantic Festival to discuss the state of the economy, the thorny U.S. economic relationship with China, and how changes in tax, trade, and immigration policy might affect American families.

The transcript of our conversation has been edited for clarity.

Ronald Brownstein: You are also, in addition to your current role, a former chair of the Fed. The Fed yesterday made its long-awaited decision to cut interest rates. What did you make of what they did? Did they go far enough?

Janet Yellen: Well, I’m not going to comment on the details of their decision, but let me just say, I see this as a very positive sign for where the U.S. economy is. It reflects confidence on the part of the Fed that inflation has come way down and is on a path back to the 2 percent target. At the same time, we have a job market that remains strong. Monetary policy has been tight, and readjusting the stance of monetary policy to preserve the strength of the labor market when inflation has come down is what I think this decision signifies.

Brownstein: Does that imply that this should be the first of several cuts?

Yellen: I think the stance of monetary policy remains restrictive. Federal Reserve Board Chair Jay Powell said yesterday that the expectation is that interest rates will come down further. But it’s, of course, necessary to watch incoming data, and there can always be surprises.

Brownstein: Last time we were on this stage, in 2022, there was a great deal of apprehension about the economy, about the Biden administration’s management of the economy. Here we are now, two years later: Unemployment is at 4.2 percent; inflation is under 3 percent. The Fed is finally cutting interest rates. Taylor Swift has been in the news a lot lately—so let me ask you: “Are we out of the woods yet?”

Yellen: There are always risks to the economy, so you want to avoid being overconfident. But when we spoke two years ago, what I said was, I believed that there was a path to bring inflation down in the context of a strong job market. And if the Fed and the administration’s policies could succeed in accomplishing that, we’d call that a soft landing. And I believe that’s exactly what we’re seeing in the economy.

Brownstein: So just buttoning up this point, you think we have achieved the soft landing, and we will not see unemployment rise unacceptably?

Yellen: I do believe the job market remains strong. The unemployment rate has moved up meaningfully, but from historically low levels—and it’s rare to have, in the United States, an unemployment rate with four as the first digit.

Wages are going up at a good pace faster than inflation. So workers are getting ahead in real terms. But what we’re seeing is a normal, healthy labor market. We still have positive job growth in the economy. And I believe it’s possible to stay on this course.

Brownstein: Let me ask you about two immediate events in the news. One, how big a disruption to the economy would it be if the government shuts down at the end of this month?

Yellen: It would be very undesirable for the government to shut down. It would cause disruption in the lives of many people. And it’s utterly unnecessary, so I truly hope that that is not something that is going to happen.

Brownstein: I know it’s handled at the Office of Management and Budget and the White House, but do you see a pathway to keeping the government open?

Yellen: It’s an easy pathway to keeping the government open: We need a continuing resolution. We’ve achieved that in the past, and I certainly hope it’s something that we will achieve again.

Brownstein: President Biden has pretty clearly signaled his opposition to Nippon Steel’s acquisition of U.S. Steel, citing national-security concerns. You chair the committee that reviews these kinds of international economic deals. This administration has talked about “friendshoring” from the beginning, trying to integrate our supply chains more tightly with allied countries. Why would Japan, of all places, be a national-security risk to own a major American company?

Yellen: I’m not able to talk about the specifics of this or any transaction under very strict confidentiality rules that govern the Committee on Foreign Investment in the United States. But let me say: I do believe that trade and foreign direct investment are very beneficial for the U.S. economy. You’re right that we have focused on trying to deepen our ties, with trade and investment, with a range of countries who are our friends to diversify our supply chains, and in particular to reduce our dependence on China for a number of key inputs in goods.

It’s critically important to have an open and welcoming environment, encouraging foreign direct investment in the United States. But the committee’s job is to identify if there are any national-security concerns, and that is always the focus, both in the law and in the process that the Committee on Foreign Investment engages in.

Brownstein: I know you can’t talk about specific policies or individual candidates in the presidential race; I want to ask you about the debate about tariffs and this fundamental question about tariffs. Who pays the tariff? Is it a foreign country that is really paying the tariff? Or if tariffs are raised, is it American consumers who ultimately pay the bill?

Yellen: There’s been a great deal of economic research on this topic, and almost all of it suggests that the purchasers of the goods—in this case Americans, if we have tariffs—will end up paying the tariffs and seeing higher prices for the goods that they purchase.

Brownstein: There was a study the other day that calculated that undocumented migrants account for 22 percent of agricultural workers, 15 percent of construction workers, 8 percent of manufacturing workers, and 8 percent of service workers, including child-care workers. In your view, what would be the impact of removing all or most of them from the economy in a short time through a program of mass deportation?

Yellen: I believe that immigrants have always made, and continue to make, a positive contribution to the U.S. economy. We have an aging population, and between 2010 and 2018, immigrants made up, I believe, 60 percent of all additions to the labor force. They obviously contribute to the dynamism of the U.S. economy.

We need, I believe, an orderly immigration system. And there’s obviously work to do for Congress to work with the administration to accomplish that. But I think it would be devastating to simply remove this number of immigrants.

Brownstein: What would that mean, in your view, for inflation?

Yellen: I think it would raise inflation. These workers have contributed to America’s ability to produce more goods, including agricultural goods.

Brownstein: The biggest fiscal-policy decision facing the next president is that, at the end of next year, the Trump tax cuts passed in 2017 expire. Let’s walk through the different scenarios in your view. What would be the impact of extending the entire tax cut, as it was passed in 2017?

Yellen: If the entire tax cut is just extended and nothing is allowed to expire, I believe the Congressional Budget Office has estimated that, over 10 years, that would be almost a $5 trillion blow to the overall budget deficit. Honestly, I believe that is something the United States can’t afford. We need to be on a sustainable fiscal path. If we extend any of the tax cuts—and President Biden and Vice President Kamala Harris have suggested extending the tax cuts that benefited middle-class families, families making under $400,000, increasing the child tax credit—ways absolutely have to be found to pay for that. In addition, we need to lower deficits to stay on a fiscally sustainable path.

Brownstein: Given the pressure on deficits that the Congressional Budget Office shows, and given what you said before about an aging society, what’s the case against just letting the whole thing expire?

Yellen: President Biden and Vice President Harris are really concerned about the ability of middle-class families to make ends meet. And [these people] really face a variety of stresses due to the high cost of living, particularly in areas like child care, health care, housing. And the president and vice president believe it’s the right thing to have middle-income families not see their taxes increase. On top of that, there are ways to pay for investments that make our economy function better, more productive, and address the high cost of living that is of such concern to Americans.

Brownstein: And you believe that if you look at the costs of the investment agenda—what the administration wants to do for the care economy, as well as the cost of an aging society—that all of that can be funded primarily by raising taxes on people at the very top? Is it really plausible to do all the things that Democrats want to do in the long run solely by raising taxes on the very top 5 percent or so?

Yellen: I believe it actually is.

The wealthiest individuals, much of their income comes from capital gains, which, until they’re realized, are never taxed and often escape taxation entirely through step-up basis when people die. And the impact is that some of the wealthiest Americans, the highest-income Americans, are paying average taxes that are under 10 percent. And something like 60 percent of those people pay 2 percent or less, which is less than a schoolteacher or police officer pays on their income.

Brownstein: Let’s turn to another issue that has occupied a lot of your time: China. This summer, President Biden issued an executive order limiting U.S. investment in Chinese technology companies. Last week, the administration finalized a series of tariffs on Chinese imports of electric vehicles, EV batteries, solar panels, critical minerals, steel, and aluminum. Are you concerned about the direction of the economic relationship between these two giant economies, particularly when the U.S. is so dependent on, so intertwined with, China?

Yellen: We have an extensive trade and investment relationship with China, and I believe most of it is beneficial both to the United States and also to China—and uncontroversial: It doesn’t raise national-security issues and doesn’t raise profound issues of unfair trade. I’ve worked to develop a relationship with China in which that kind of trade and investment can continue to thrive.

That said, we do have concerns. We have controlled the exports of goods that we think can boost China’s military in ways that will be damaging to U.S. national security. In addition, we have extreme supply-chain dependence—and, I would say, overdependence in many areas—on China.

In some cases, these are areas in which China has heavily engaged in building capacity through enormous subsidies to their industry. And those are areas where we do have concerns. We feel trade should be on a level playing field. And we want to make sure that we have resilient and diverse supply chains.

The tariffs that you mentioned that we put on electric vehicles and on battery components, aluminum, and steel, these are areas in which China has enormous excess capacity. We’ve made a conscious decision that in the area of clean energy, we want to develop this as an industry in the United States. That’s not to say we want to do everything entirely ourselves. We believe in friendshoring; we have built deepened ties with many countries that—in Latin America, in Asia—can be part of those supply chains. But we really want to reduce our dependence on China.

Brownstein: It isn’t just the supply chain, though, right? As you point out, the administration has put enormous effort into accelerating the development of the clean-energy industries in the United States. Are you concerned that, without these tariffs, Chinese imports would simply overwhelm those nascent industries that we are trying to develop in the U.S.? Is this fundamentally about protecting the new clean-energy industries?

Yellen: That is an issue that is an important motive. At the moment, in areas like solar panels, wind turbines, electric vehicles, electric batteries, China’s prices and costs are extremely low. All of these are areas in which China has engaged in enormous investment over the last decade. And in many cases, there is just utter overcapacity in China: China’s production of solar panels exceeds total global demand. The Chinese government at all levels has been throwing money at developing these industries.

So, yes, I would say that without some protection, our industry is not going to get off the ground. And this is a conscious decision that, while we’re certainly willing to engage in trade in clean energy with friends, we do want to have some presence in the United States in these industries of the future that are important in supplying jobs, good jobs, especially to people who don’t have a college education.

Brownstein: You served in the Clinton administration as the chair of the Council of Economic Advisers. In the Clinton era, certainly he believed that integrating China into the global economy was a way, not only of providing economic opportunity for the developed world, but also of moderating its behavior. I would say that if there’s one area of convergence among Kamala Harris, Tim Walz, J. D. Vance, Donald Trump, and Joe Biden, it is the rejection of that view.

Has the pendulum swung too far in the other direction? Are we missing an opportunity as countries around the world become more focused on nurturing these domestic industries and building barriers to more economic integration?

Yellen: Regarding some of the hopes and aspirations we had for the development of democracy in China, along with economic development, we’ve been disappointed that that hasn’t come to pass. The impact of China—our burgeoning trade with China in the aftermath of China joining the World Trade Organization—really imposed, along with other factors, harm, especially on workers in America who lacked a college education. We experienced something that’s referred to as the China shock: We saw several million manufacturing jobs eliminated in parts of the country that truly needed these jobs. They disappeared.

Trade is good, and it can enhance overall the welfare of a country. But if the gains are not sufficiently widespread, it’s something that is not sustainable over the longer run. I think we saw that while there may have been gains, there were a significant group of Americans that were losers.

This is not to say that we should shut down trade and investment with China. We gain from much of it. But I think the attitude about what impact it has on the United States has become more realistic over time.

Brownstein: This shift in temperature toward China: Do you see it reversing anytime soon, or is this now the new policy consensus in the U.S. that’s going to endure?

Yellen: There does seem to be bipartisan agreement. And I understand the rationale for it, and agree with it. But I do think that we have a deep trade and investment relationship with China, and much of it is beneficial to America. It supports our export industries. We gain new technology from it. And I would not want to see this backlash proceed to the point where we really interfere with those benefits.